Proctor and Gamble 2009 Annual Report Download - page 33

Management’s Discussion and Analysis The Procter & Gamble Company 31
Management’s Discussion and Analysis
The purpose of this discussion is to provide an understanding of
P&G’s financial results and condition by focusing on changes in
certain key measures from year to year. Management’s Discussion
and Analysis (MD&A) is organized in the following sections:
ō Overview
ō Summary of 2009 Results
ō Forward-Looking Statements
ō Results of Operations
ō Segment Results
ō Financial Condition
ō Significant Accounting Policies and Estimates
ō Other Information
Throughout MD&A, we refer to measures used by management to
evaluate performance, including unit volume growth, net outside sales
and net earnings. We also refer to a number of financial measures
that are not defined under accounting principles generally accepted
in the United States of America (U.S. GAAP), including organic sales
growth, free cash flow and free cash flow productivity. We believe
these measures provide investors with important information that is
useful in understanding our business results and trends. The explana-
tion at the end of MD&A provides more details on the use and the
derivation of these measures. Management also uses certain market
share and market consumption estimates to evaluate performance
relative to competition despite some limitations on the availability and
comparability of share information. References to market share and
market consumption in MD&A are based on a combination of vendor-
reported consumption and market size data, as well as internal estimates.
In November 2008, we completed the divestiture of our Coffee
business through the merger of our Folgers coffee subsidiary into
TheJ.M.Smucker Company (Smucker) in an all-stock reverse Morris
Trust transaction. In connection with the merger, 38.7million shares
of P&G common stock were tendered by our shareholders and
exchanged for all shares of Folgers common stock. Pursuant to the
merger, a Smucker subsidiary merged with and into Folgers and
Folgers became a wholly owned subsidiary of Smucker. The Company
recognized an after-tax gain on the disposition of $2.0billion, which
is included as part of net earnings from discontinued operations.
The Coffee business had historically been part of the Company’s
Snacks, Coffee and Pet Care reportable segment, as well as the
Coffee portion of the away-from-home business which is included in
the Fabric Care and Home Care reportable segment. In accordance
with the applicable accounting guidance for the impairment or
disposal of long-lived assets, the results of our Coffee business are
presented as discontinued operations and, as such, have been
excluded from continuing operations and from segment results for
all periods presented. The Snacks, Coffee and Pet Care reportable
segment was renamed Snacks and Pet Care to reflect this change.
OVERVIEW
P&G’s business is focused on providing branded consumer packaged
goods. Our goal is to provide products of superior quality and value to
improve the lives of the world’s consumers. We believe this will result
in leadership sales, earnings and value creation, allowing employees,
shareholders and the communities in which we operate to prosper.
Our products are sold in more than 180 countries primarily through
mass merchandisers, grocery stores, membership club stores, drug
stores and “high frequency stores,” the neighborhood stores which
serve many consumers in developing markets. We continue to
expand our presence in other channels including department stores,
perfumeries, pharmacies, salons and e-commerce. We have on-the-
ground operations in approximately 80 countries.
Our market environment is highly competitive, with global, regional
and local competitors. In many of the markets and industry segments
in which we sell our products, we compete against other branded
products as well as retailers’ private-label brands. Additionally, many
of the product segments in which we compete are differentiated by
price (referred to as super-premium, premium, mid-tier value and
low-tier economy products). Generally speaking, we compete with
super-premium, premium and mid-tier value products and are well
positioned in the industry segments and markets in which we operate
—
often holding a leadership or significant market share position.
Organizational Structure
Our organizational structure is comprised of three Global Business
Units (GBUs), Global Operations, Global Business Services (GBS) and
Corporate Functions (CF).
GLOBAL BUSINESS UNITS
In fiscal year 2009, our three GBUs were Beauty, Health and Well-
Being and Household Care. The primary responsibility of the GBUs is
to develop the overall strategy for our brands. They identify common
consumer needs, develop new product innovations and upgrades
and build our brands through effective commercial innovations and
marketing plans.
Under U.S. GAAP, the business units comprising the GBUs were
aggregated into six reportable segments: Beauty; Grooming; Health
Care; Snacks and Pet Care; Fabric Care and Home Care; and Baby
Care and Family Care. The following provides additional detail on
our GBUs and reportable segments and the key product and brand
composition within each.